Japan's first stablecoin unlikely to affect gov't bond demand

But it might lead to a boost in annual JGBs by around $1.88b.

Japan is set to issue its first stablecoin in late 2025, a move unlikely to impact the supply and demand for Japanese government bonds.

The Financial Services Agency (FSA) is set to authorize the first domestic issue of a JPY-denominated stablecoin pegged to a legal tender in autumn, noted Bank of America (BofA) Global Research, citing media reports.

JPYC, the fintech company likely issuing the stablecoin, is expected to hold highly liquid assets such as deposits and government bonds to ensure that the value of the stablecoin stays at JPY1.

However, based on near-term issuance plans, BofA Global Research does not expect the launch of stablecoins in Japan to lead to tighter Japanese government bonds’ supply/demand at least at this point.

“We therefore do not expect the launch of stablecoins in Japan to lead to tighter JGB supply-demand,” it said.

It might lead to a boost in annual Japanese government bonds by around $1.88b (JPY277.7b), according to a computation by BofA Global Research.

This is based on the JPYC reportedly targeting JPY1t in stablecoin issuance over the next three years, of which 20% will apparently be backed by cash and deposits, and 80% by JGBs.

This compares with JPY11t-12t in monthly JGB issuance from the Ministry of Finance (MOF).

“Whilst several other Japanese companies are reportedly considering issuing stablecoins, at least at present, we do not expect the launch of stablecoins in Japan to increase demand for JGBs,” BofA Global Research said.